First off I lurk these forums constantly and really have learned a tremendous amount from the information freely posted here so thank all of you.

I am considering rolling over an old 401k and want to make sure I'm understanding things correctly. I've searched the forums and still cannot find the information I'm looking for and also am looking for someone to point out possibly what I am not thinking of. The old 401k is with Fidelity and I'd be rolling it into roth and/or traditional IRA with Fidelity. Ultimately I will get it over to Vanguard (where my brokerage is) but am concerned that going from Fidelity (Netbenefits) 401k with both Roth and pre tax contributions along with their Fidelity Brokerage Link directly to another custodian will result in errors/long processing time so in meantime I'm keeping it at Fidelity.

Some background:
Fiance and I are three and two years out of college and only anticipiate our tax bracket increasing from here. I currently max out 401k with pre-tax contributions. Starting next year I'll be able to max out roth ira in addition (I currently do not have one setup). Fiance maxes out her roth ira and funds approximately 60% 403b with pre-tax contributions. We also contribute monthly to brokerage accounts anything over our emergency fund threshold. We are 100% Equity allocation. I think it will be >5 years before our MAGI puts us outside roth eligibility.

The account is roughly 32k with about 22k of that in roth contributions and the remaining 10k in pre-tax contributions. I am leaning towards doing the roth conversion on the 10k and want to make sure I'm understanding things correctly and if I'm missing anything.

1. The 10k will be treated as taxable income for 2018 and we will pay taxes equal to our effective tax rate for this year on that 10k (It will be treated just as if we had received an additional 10k from job salary). I will receive some kind of tax form detailing this from Fidelity to include on my 2018 taxes.
2. I will still be eligible to contribute the $5500 for this year if I decide to.
3. How and/if in the future can this come back and bite me in the butt?

If it was me I would roll the post-tax portion into a Roth and roll the pre-tax funds into a tIRA, just for the sake of paper trail and record keeping. There are no tax consequences at this step of the process.

Then I would do a conversion of the tIRA to Roth, this will show the $10,000 in a stand-alone transaction, rather than one part of a $32,000 transaction. This isolates the pre-tax and post-tax conversions and at least to me seems to make things clear.

But that is just my preference, your process will work but take each step with care and document everything.

Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

I have a similar problem moving my fidelity 401 to vanguard for fear of being out of the market for a period of time that may have an impact on any market movement,I've chose to stay put at least for the time being, Good Luck!

If it was me I would roll the post-tax portion into a Roth and roll the pre-tax funds into a tIRA, just for the sake of paper trail and record keeping. There are no tax consequences at this step of the process.

Then I would do a conversion of the tIRA to Roth, this will show the $10,000 in a stand-alone transaction, rather than one part of a $32,000 transaction. This isolates the pre-tax and post-tax conversions and at least to me seems to make things clear.

But that is just my preference, your process will work but take each step with care and document everything.

^^This. I think either your way or the above way will work, OP, but the above is good advice. It keeps things nice and clean and separate, so that you have a good paper trail and a far easier explanation to make to the IRS if it ever shows up saying you owe more taxes (+penalties/interest) based on how you went about getting your Fidelity 401k to your ultimate destination of your Vanguard accounts.

Last edited by SoAnyway on Mon Dec 17, 2018 10:29 pm, edited 1 time in total.

Fiance and I are three and two years out of college and only anticipiate our tax bracket increasing from here.

First, congratulations on planning this far ahead at this early stage!

The Traditional versus Roth choice depends more on your current tax rate vs. your retirement tax rate than it does on current vs. future working career rates, but you are correct that the lower your tax rate now the more likely Roth will be your better choice.

1. The 10k will be treated as taxable income for 2018 and we will pay taxes equal to our effective tax rate for this year on that 10k (It will be treated just as if we had received an additional 10k from job salary). I will receive some kind of tax form detailing this from Fidelity to include on my 2018 taxes.
2. I will still be eligible to contribute the $5500 for this year if I decide to.
3. How and/if in the future can this come back and bite me in the butt?

1) Correct, with one wording change: it will be your marginal tax rate, not the effective one. But it will be calculated as you describe.
2) Yes.
3) There are probably an infinite number of ways. Practically speaking, however, you should be fine.